A new year often brings the prospect of surprises, shifts and new innovations. Although the real estate industry is sure to experience plenty of shake-ups, one thing is poised to remain (mostly) the same: the housing market.
According to Zillow’s housing market predictions released on Tuesday, 2020’s housing market will be strikingly similar to 2019 as low mortgage rates, robust buyer demand, a steady economy and slowing home price growth stick around.
“With the housing market stabilizing from the drama of the price recovery and the slowdown during 2019’s home shopping season, we have a rare moment of calm to reflect on what housing might look like in the year to come,” said Zillow Director of Economic Research Skylar Olsen. “If current trends hold, then slower means healthier and smaller means more affordable.”
“Yes, we expect a slower market than we’ve become accustomed to the last few years, but don’t mistake this for a buyer-friendly environment – consumers will continue to absorb available inventory and the market will remain competitive in much of the country,” Olsen added.
Mortgage rates will stay low while home value growth slows
Thirty-year fixed mortgage rates will stabilize at 3.8 percent in 2020, not a far cry from the 3.6 to 3.8 percent range rates have been staying in since June. As a result, Zillow predicted buyer demand will continue to get stronger despite affordability barriers in expensive markets.
Instead of playing the waiting game, buyers are expected to move to cheaper, secondary markets or to more affordable suburbs on the outskirts of their current cities.
“But low rates don’t help overcome the upfront hurdle of high down payment requirements, pushing buyers in expensive areas to fan out in search of areas they can better afford,” Zillow explained.
However, there is a silver lining for buyers aiming to purchase their first home or trade up to newer digs — home value growth is expected to slow to 2.8 percent year-over-year, a 1.9 percent decline from the current growth rate.
Low inventory won’t stop home sales growth
Despite lackluster inventory levels, home sales will pick up the pace in 2020, thanks to a flood of thirty-somethings entering the market for the first time.
“There are more and more potential buyers as the large Millennial generation is reaching peak homebuying age in greater numbers each year, and they are benefiting from low mortgage rates, an increase in new construction permits and technology – such as Zillow Offers and other iBuyers – that is reducing friction in the market,” read the report.
Millennials will determine housing trends
As millennials reach their peak homebuying age, Zillow said homebuilders will respond by constructing smaller, more affordable homes that meet this generation’s desires and needs.
The median square footage of new single-family homes has fallen four times over the past five years, with the average U.S. home shrinking by more than 80 square feet.
Instead of simply looking for the biggest listing, Zillow said millennials are more likely to evaluate potential homes based on a neighborhood’s walkability and the proximity to urban amenities, such as reliable public transit stations and vibrant entertainment areas.
Beyond influencing home construction trends, millennials are expected to shift home design away from neutral, Scandinavian-inspired looks toward something more colorful.
“Fun will return to home design in the form of bold prints, lively wallpaper and brightly hued walls,” Zillow said. “Look for color to be injected in unexpected ways in kitchen cabinetry and appliances, in lighting fixtures and on interior doors and moldings.”
No recession in 2020
There have been rumors of an impending recession swirling around for the past year, as other global superpowers have fallen into economic and political crises. Those events along with domestic troubles, such as a trade war with China and ongoing impeachment proceedings, have fueled uncertainty for some Americans.
Despite those issues, a recession is unlikely as jobs creation, wage growth, and consumer spending remain strong.
“Consumer spending has picked back up – reflecting healthy consumer confidence – job creation is on a steady path and annual wage growth has stayed at or above 3 percent since October 2018,” Zillow noted.